As the saga around the arrest of Huawei businessman Meng Wanzhou continues, China reported this week that it has arrested a third person. A Canadian woman has been accused of working illegally and is now subject to “administrative punishment.”
This latest arrest comes on the back of two prior detentions. Former diplomat Michael Kovrig and businessman Michael Spavor have both been detained in China, accused of posing a threat to national security. However, each of these three arrests made by Chinese officials has simply been a retaliatory response to Wanzhou’s arrest in Vancouver.
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The ongoing dispute is troubling markets as it is viewed as posing a threat to the ongoing trade talks between the US and China. While the US was not responsible for the arrest of Wanzhou, China believes that Canadian officials were acting on US orders and such retaliation runs the risk of angering Trump and derailing trade talks.
China Risking Trade Deal Progress
Indeed, at a time when concerns over a slow down in China are still prominent and given the early nature of trade talks, the risks around such behavior seem incredibly asymmetric.
Trump has warned that if trade talks break down or if the 90 days deadline passes without a deal, he will increase current 10% tariffs on $200 billion of Chinese goods to their full 25% and also cautioned that he could tariff the remaining $267 billion of Chinese goods entering the US.
The risk-off tone to the markets currently is very clear with safe-haven assets such as JPY and XAU rallying while higher bet currencies and equity market struggle, despite the weaker US Dollar.
The S&P has now fallen to its lowest level since mid-2017 before bouncing at the completion of the large ABCD symmetry pattern from 2018 highs. To the topside, there is plenty of resistance with the broken prior 2018 lows of 2530.70 just ahead and above that further prior swing lows at 2551.87.